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Will presentation 20070812

3.
Why should a Will be drafted professionally?
“ For serious planners, there can be only one answer
to this question. A will is the single most important
tool of any estate plan, economic, fiscal or dynastic.
Left in the wrong pair of hands, it can destroy
families and damage fortunes.”
A will can be defined as a written document in
which a testator/trix voluntarily sets out his/her
instructions as to how their assets are to devolve
following death.

4.
When should your Will be reviewed?
• At least every two years.
• If you have children/grandchildren.
• If you have offshore assets.
• If you get re-married/divorced.
• On the death of a spouse.
• If there are amendments to the tax act.
• If you have implemented any other form
of estate planning such as a trust.

5.
Freedom of testation
• This is the freedom to execute a Will which is
valid both in content and in compliance with all
the prescribed formalities whereby a testator/trix
can leave their assets to whomever they please.
• In South Africa this freedom is almost unfettered.
• Freedom extends to the disinheritance of anyone
and includes his spouse and children.

6.
Freedom of testation
• There are exceptions to freedom of
testation, namely
– Testator has an obligation to maintain and
educate his minor and needy children.
– Surviving spouse has a claim for reasonable
maintenance.
– If married „out community of property with
accrual‟ then the surviving spouse has a claim
for ½ of the accrual.

7.
Requirements of a valid Will
• Must be signed in the presence of two witnesses
(older than 14).
• Must be dated.
• Each page must be signed by the testator/trix.
• Must be signed in the presence of two witnesses
who do not benefit from the will and they, in
turn, must sign in the presence of the testator/trix
and each other.

8.
Death duties in the estate
• There are 3 major „death duties‟ in every
estate, namely:
• Executors fees: Normally levied at the official
rate of 3,5% + VAT. These are levied on the
gross value of assets which the executor must
administer.
• Capital gains tax. Calculated up to 10% depending
on the nature of the asset.
• Estate duty tax: Calculated at 20% of the dutiable
estate > R3,5m

9.
Why is a Will important?
• With no valid Will you will die intestate.
• Dying intestate will lead to unintended
consequences with regards to
– Assets not benefiting the intended people
– Death duties
– CGT
– Appointment of Executor/s of choice

10.
Example of dying intestate
Mr Jones passes away without leaving a valid
Will. He leaves behind his wife Mary, his
son Paul who is 18 and his two minor
children. His estate after all liabilities and
administration costs is valued at R10 million.
He was married out of community of property
excluding accrual.
The distribution of his estate including death
duties will look as follows:

11.
Example of dying intestate cont..
• R10 Million is divided by 4, with a spouse
entitled to a Child‟s share or R125,000, which
ever is the greater
• Estate Duty would be as follows:
Total estate value R10,000,000
Less S 4q R2,500,000
Less abatement R3 500 000
Total estate Duty R4m x 20% = R800k

13.
Example of dying intestate cont..
• Minor‟s portion to Guardians fund.
• A correctly drafted Will would have:
- reduced estate duties.
- reduced CGT.
- and would have better catered for the maintenance
of a surviving spouse and minor children.

14.
Example of efficient planning
Mr Jones passes away and leaves R3,5m to his
children and the residue to his wife Mary. The
Will makes provision that if children are under
18, their share will be held in Trust. His estate
after all liabilities and administration costs is
valued at R10 million. He was married out of
community of property excluding accrual.
The distribution of his estate including death
duties will look as follows:

17.
Types of planning in a Will
• Simple will using the spousal relief:
– Residue of estate is bequeathed to the
surviving spouse.
– Estate duty tax and capital gains tax are
deferred until the death of the surviving
spouse.
– Only surviving spouse would benefit from the
R3,5 million abatement.

18.
Impact of basic planning
Mr & Mrs Smith each have an estate of R3,5m. If
they leave everything to the survivor and the
survivor passes away shortly afterwards, only the
survivors estate would be subject to the R3,5m
abatement i.e. estate duties payable would be 20%
of R3,5m = R700 000.

19.
Types of planning in a Will
• Advanced planning:
– The primary abatement of R3,5 million is
bequeathed to an inter vivos trust or a
testamentary trust and residue to spouse.
– This will save death duties in the surviving
spouses estate.
– Total saving amounts to
• 20% x R3,5 million = R700,000 (plus savings on growth
of investment)
• 3,99% x R3,5 million = R139,650

21.
Types of planning in a Will
• Use of the primary abatement can also be
used in a foreign Will.
• Benefits:
– Make use of the tax free abatement.
– Creates a tax shelter for these assets offshore.
– Provides a vehicle to protect assets.

23.
Separate Wills for foreign assets
• A valid South African Will is recognised in most
foreign countries, but certain countries probate
system do not accept our freedom of testation, for
example Greece.
• A South African executor is prohibited from
winding up assets outside S.A.
• Potential lengthy procedures if foreign assets
must be dealt with in terms of a S.A. Will.

24.
Separate Wills for foreign assets
• Benefits of a foreign Will are:
– Separate administration of the estate carried out
in parallel to the administration of the SA
assets.
– An executor familiar with the procedures
required in those territories can save time and
therefore costs.
– An opportunity for early advice on any
potential taxation and succession dangers.

25.
Separate Wills for foreign assets
• It is vitally important that where more than one
Will is in existence that both documents dovetail
together and do not have the effect of revoking
one another!

26.
Usufructs in Will planning
• What are their drawbacks?
– The base cost for CGT becomes the very low
Bare Dominium value.
– They are extremely restrictive.
– They may lead to incorrect investment
decisions.

29.
Example of usufruct cont...
• Base cost for children is R1 826 920 an increase
in CGT of at least R817 000.
• Mrs Y only wants the funds invested in cash as
she is only entitled to income and can‟t benefit
from capital growth.
• Mrs Y‟s children would have to agree to any
changes that she may want to make with the
portfolio.

30.
Alexander Forbes/Sentinel
• Relationship is in its 8th year.
• Officially set up a joint venture this year.
• Alexander Forbes Fiduciary Services is now
operating under a Trust license.
• Sentinel to provide advice and
administration platform.